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Enabling 'Make in India' by Strengthening Indian Manufacturing& Reducing Country's Import Dependency
Knowledge and Strategic Partner
White Paper on
Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
Knowledge and Strategic Partner
Enabling 'Make in India' by Strengthening Indian Manufacturing& Reducing Country's Import Dependency
White Paper on
Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
Message
PVC and Caustic Soda industry (both of which are inter-linked) are two basic segments of
Indian industry which facilitate a chain of down stream industry such as agriculture,
infrastructure, housing and sanitation etc. These sectors are stagnating in the country, with
increasing dependence on imports. The last greenfield investment for a PVC plant in India was
conceived in the year 2002-03 and operations started in 2007.This is not a sustainable
scenario with a long term perspective for a large economy like India.
It is gratifying that an initiative has been undertaken for bringing out a White Paper which
provides a holistic approach to issues and challenges being faced by the Chloro Vinyl industry
as also the way forward. I am sure, it will be found useful by all stake-holders.
Mr. Vinay MathurDeputy Secretary General
The Chloro Vinyl industry is an important component of national economy comprising the Poly
Vinyl Chloride (PVC) and the chlor-alkali industries. These are basic industries which are
essential to the growth of Indian economy. They provide products with applications in a
variety of sectors. Indian Poly Vinyl industry is presently not doing well. Import of PVC, which
was less than 5% of the country's demand ten years ago, is now at almost 50% and is growing.
The PVC industry also has a linkage to the Caustic soda industry. Majority of Chlorine
produced goes into PVC manufacture, and if there is no PVC capacity addition, there can be no
Caustic Soda capacity addition. As a result imports are increasing.
That is not a healthy sign and has long term implications for national economy. To bring out
the challenges and issues of the sector, a White Paper on enhancing competitiveness of Indian
Choloro Vinyl industry has been prepared. It is evident that the situation is grave and needs
attention from all stake-holders.
Mr. Prabh DasChairman-FICCI National Petrochemicals CommitteeManaging Director & CEOHPCL-Mittal Energy Limited
Preface 01
1. Why focus on PVC and Caustic Industries? 02
2. PVC 04
3. Need for strengthening domestic PVC production 11
4. What ails PVC and Caustic capacity addition? 18
5. Recommendations for augmenting PVC & Caustic Soda Capacities 22
6. Conclusions 23
7. Abbreviations 24
8. About Tata Strategic 25
9. Tata Strategic Contacts 26
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04
Global scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04
Indian Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 06
Future Potential in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rising supply – demand gap in PVC will make imports unsustainable. . . . . . . . . . . . . . . . . . 11
Caustic Soda domestic capacity additions being hindered by lack of PVC capacity growth . . . . 15
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Free Trade Agreements - Relevance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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Table of Content
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
01
Poly Vinyl Chloride (PVC) industry is important for national economy. Investments are not happening
despite the rapidly growing Indian PVC market. The last greenfield investment for a PVC plant in India was
conceived in the year 2002-03, when duty differential was a little over 15%. However, while demand has
grown by almost 1.6 million tons no new capacity addition has even been envisaged. Indian import duties
on PVC are lower than those in the developed world and in the ASEAN Region. Imports of PVC, which were
less than 5% of the country's demand ten years ago, are now at almost 50% and growing rapidly every
year and are expected to reach to $3 billion in a few years. Appropriate fiscal measures can propel
investments in the PVC sector. It also has a very serious long term deleterious effect on the Indian
Caustic Soda industry. The majority of Chlorine produced goes into PVC manufacture, and if there is no
PVC capacity addition, there can be no Caustic Soda capacity addition, and the country will become
reliant on the import of yet another basic growing product, Caustic Soda.
The issue has been well debated in the FICCI National Petrochemical Committee, which decided that a
White Paper on the subject may be brought out. The ultimate objective of same is Enabling 'Make in
India' by Strengthening Indian Manufacturing & Reducing Country's Import Dependency. The result is
this Paper which, it is hoped places these important segments of Indian industry in proper perspective
thus facilitating appropriate actions by stake holders, including the Policy makers.
Preface
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
02
The PVC industry in India is valued at over Rs. 20,000 crores with five major producers and over 6,000
processors, employing tens of thousands of people, making consumer and industrial products. In spite of
strong economic growth, India still has a long way to go to realize its infrastructural needs - nearly USD
650 billion will be required for urban infrastructure in the next twenty years. Also, the construction
sector contributes to 10% of the GDP. This provides great opportunity for investment and hence for PVC
products that are used in these sectors.
Caustic soda is a basic building block finding application in a variety of industries and chlorine is an
essential element, finding application in products of everyday use, including in life saving medication.
The Indian caustic & chlorine industry is estimated at over Rs.7, 000 crores annually, provides
employment to about 1.5 lakh people (direct & indirect) and contributes over Rs.100 crores to the
exchequer by way of duties and taxes.
Why focus on PVC and Caustic Industries? 01
Source: Market Research
Sodium Chloride (NaCI)
Caustic Soda (NaOH) Chlorine (CI )2 Ethylene (C H )2 2
Polyvinlyl Chloride (PVC)
Vinyl Chloride Monomer (VCM)
Ethylene Dichloride (EDC)
Figure 1: PVC value chain
PVC is a product which is derived at the end of a value chain (ref fig 1) that begins with common salt
(NaCl). Caustic and chlorine are produced from NaCl. Chlorine and ethylene gives EDC which is used to
produce VCM. PVC is derived from VCM. There is an enormous gap between supply and demand in both PVC
and caustic industries, which would only increase at a rapid pace as we go forward. Capacity creation
doesn't seem to be taking place, even to the extent of part of the demand growth. In the case of caustic
soda, the inadequate means to sink incremental chlorine has been a bother for the industry for long. The
vinyl industry is the single largest consumer of chlorine globally. Unless this sector expands in India,
there is no real chance for substantial capacity addition in caustic. Even the existing capacities are
threatened by the increased arrival of imports that has depressed margins for domestic players over the
course of the last few years, thus resulting in inadequate utilization/augmentation of domestic
capacities.
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
03
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
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PVC 02
Introduction
Global scenario
Fundamentally, PVC is a synthetic resin made from the polymerization of vinyl chloride. It is the third
largest plastic in production and consumption. Technology has gradually improved over time with
improvements in safety, product quality, production volume, environmental issues and cost. A key
feature of PVC is that it can be combined with additives and fabricated into a wide variety of forms. These
include pipes and fittings, profiles and tubes, windows and doors, sidings, wires and cables, film and
sheets, toys and other moulded products and floorings. This quality, together with features such as
durability, self-extinguishing property, resistance to most chemicals and oil, mechanical strength and
ease of processing, means that PVC is a competitive and attractive option for many end uses in
construction and infrastructure, agriculture, electrical products and healthcare. Further, only 43 % of
PVC's content comes from oil. The balance 57% comes from salt, meaning that PVC is less dependent on
fossil fuels compared to other materials. This feature, coupled with the fact that PVC products can last up
to 100 years, can be recycled and can provide products with good quality to price ratio, greatly reduces
life cycle costs of PVC.
Globally, the growth of the industry over the last 100 years has been spectacular. Production capacity has
grown from a few thousand tons in the 1930s to over 50 million tons today. The global capacity break-up
is given below.
Growth in demand will be concentrated in developing countries in Asia, Africa, Latin America and the
BRICS. The per capita consumption in India of 2kg is low compared to 11.8kg per capita in the US and
10.3 kg per capita in China (ref to figure 3). The forecasts for the PVC industry are bright. The global
market, currently at US$ 56 billion, is expected to reach revenue of US$65 billion in 2019, with average
annual demand expected to increase at 3.9%.
NE Asia, 55%
SE Asia, 4%
North America, 16%
South America, 3%
Middle East, 2% Indian Subcontinent, 3%
Africa, 1%Central Europe, 4%
Western Europe, 12%
Source: Industry Reports
Figure 2 - Global PVC capacity break-up (%)
Figure 3 - Per capita consumption of Suspension PVC
2
5.6
7.6
8.8
10.3
12.7
0
2
4
6
8
10
12
14
India Brazil Malaysia Thailand China USA
Qua
nti
ty(k
g pe
r pe
rson
)
Source: Industry Reports
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
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The global consumption of PVC in 2014 was estimated at 40 million tons. The region wise break-up is
given below.
Figure 4 - Global PVC demand break-up
Africa, 3%
Indian Subcontinent, 7%
Middle East, 6%
Central Europe, 2%
Western Europe, 10%
South America, 5%
North America, 13%
SE Asia, 5%
NE Asia, 46%
Source: Industry Reports
Indian Scenario
India has been producing PVC for over 50 years now, with the first plant of 6ktpa capacity set up by Calico
Mills Ltd., in Mumbai in 1961. After this, India never looked back till about the mid-2000s (ref to figure
5), with capacity keeping pace with demand.
Figure 5 : Historic PVC Capacity Additions in India
Historic Capacity Addition (ktpa) Chemplast, Cuddalore
170 IPCL, Gandhar
150Finolex, Ratnagiri
130Reliance Hazira
160
IPCL Vadodara
55
DCW Tuticorin
30
NOCIL Thane 21.5
Chemplast, Mettur
6
DCM Shriram,
Kota 7
Calico Mills,
Mumbai 6
1961 1964 1967 1968 1971 1984 1990 1992 1998 2009
Note: 1) Calico Mills and NOCIL facilities are shutdown and are not operational. 2) Any further capacity addition in these plants are not included since their commissioning dates.
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
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The figure below illustrates how, after the drop in duty levels in mid 2000s, capacity addition completely
lagged demand growth, resulting in the zooming import numbers.
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
200
400
600
800
1000
1200
1400
1600
1800
2000
FY94 FY95FY96FY97FY98FY99FY00FY01FY02FY03FY04FY05FY06FY07FY08FY09FY10FY11 FY12FY13FY14FY150%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Note: In case where importy duty has been changed within the the FY, the customs duty that has been levied for majority of the months with in that FY has been taken
Domestic production Imports Imports as a % of consumptionImports
Source: Industry research, EXIM data, CPMA
Qua
nti
ty in
KT
Impo
rt D
uty
/ Pe
roen
tage
of
Impo
rts
to c
onsu
mp
tion
Figure 6 : PVC production and imports in India
The PVC industry in India has historically been driven by agriculture till 2000. Thereafter, the main driver
for PVC consumption has been infrastructure growth. For instance, Pipes & Fittings, that constituted only
14% of the total consumption in 1975, has grown to over 70% now (ref to figure 7).
Figure 7 - PVC demand in India - History
0
500
1,000
1,500
2,000
2,500
3,000
1972 1975 1980 1985 1991 1995 2000 2005 2010 2014 2015
Qua
nti
ty (
kt)
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
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Currently, in India, approximately 73% of the PVC is consumed by the Pipes & Fittings industries with the
other sectors comprising only 27%. Globally, Pipes & Fittings account for only 43% of the PVC
consumption, showing that PVC applications in India other than Pipes & Fittings are still in the early
stages and are primed for growth. This, along with the relatively low per capita PVC consumption in India,
shows that future prospects for the Indian PVC processing industry are bright.
Figure 8 - Application break-up of PVC – India
Flooring 8%
Others6%
Wires & Cables 5%
Films & Sheets 5%
Profiles 3% Pipes & Fittings73%
Figure 9 - Application break-up of PVC - Global
Others 10%
Floorings 3%
Wires & Cables 8%
Films & Sheets 17%
Profiles19%
Pipes & Fittings43%
The total demand for PVC in the country in 2014-15 was at 2,564kt. The demand grew by 6% compared to
2013–14 (ref to figure 10).
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
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The figure below illustrates how, after the drop in duty levels in mid 2000s, capacity addition completely
lagged demand growth, resulting in the zooming import numbers.
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Figure 10 - PVC consumption in India (2001-2015)
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Qua
nti
ty (
kt)
Gro
wth
rat
e (%
)
Source: CPMA Industry research
For the period between 2002 and 2015, the total demand for PVC in the country grew at a CAGR of 8.7%.
During the same period domestic production capacity grew at a CAGR of 4.6 % whereas imports grew at a
CAGR of 32.5%.
The domestic manufacturers and their respective current capacities are given below:
Figure 11 : Domestic manufacturers and capacities (kT)
750
365
26090 70 1535
Reliance Chemplast Finolex DCW DCMShriram
Total
Source: CPMA Industry research
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
09
Future Potential in India:
Indian PVC demand in the future will be driven by the following sectors
1) Agriculture: The government has emphasized on bringing in increased land under irrigation.
2) Infrastructure: The Government is focusing on rural water and sanitation infrastructure which
will be a huge consumer of PVC pipes. The development of 'smart cities' will be a further boost to
PVC consumption in India due to the huge requirement of urban infrastructure in these cities.
3) Housing: The demand for housing from the middle income group in India is expected to increase
in the coming years and the Government is taking active steps to bridge the gap in supply. It is
estimated that every year, 2 million housing units are built in urban areas while 4.5 million units
are built in rural areas. One typical urban unit will require about 200 kg of PVC in major
applications like pipes, doors & windows, conduits, wires & cables, etc. while one rural unit
requires approximately 75 kg of PVC. Thus, the potential for PVC in the building and construction
sector alone is over 700 ktpa (without taking smart city development into account). Moreover,
introduction of green building concepts is picking up. PVC, being recyclable, less energy
intensive and having longer life will be in demand in these segments. Furthermore, development
of smart cities initiative from government will further drive the urban housing demand.
4) Other sectors: PVC has packaging as well as other applications in the FMCG, pharmaceutical &
retail segments. These sectors are expected to grow in the coming years as the customer base
comprising India's young population increases.
Further, there are a number of applications in India, which are still nascent or currently
unexploited like, wall cladding, technologically-advanced pipes for sewerage application, liners
for landfill applications, decking, furniture applications, waterproofing membranes and food
grain storage.
These products are well established abroad and with ever-increasing urbanization, changing
lifestyles, new technologies in construction and other factors, investments in these sectors are
expected in the future. This bodes well for the PVC industry. Taking into account the above demand
drivers and the CAGR in demand of around 9% from 2002-2015, it is estimated that annual demand
growth for PVC will be at least 13% in the next five years. Demand is expected to cross 5 million tons
in 2020.
2,5632,896
3,2723,698
4,1784,722
5,335
0
1,000
2,000
3,000
4,000
5,000
6,000
2014-15 2015-16* 2016-17* 2017-18* 2018-19* 2019-20* 2020-21*
Qua
nti
ty (
kt)
Source: CPMA reports
Figure 12 : Demand forecasting for PVC
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
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03
Rising supply – demand gap in PVC will make imports unsustainable
India's supply – demand imbalance in PVC means that the deficit in demand is met by imports. As seen
earlier, for the period between 2002 and 2015, the total demand for PVC in the country grew at a CAGR
of 8.7%. During the same period domestic production grew at a CAGR of 3.7 % whereas imports grew at
a CAGR of 32.5%.
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
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Figure 13 : Supply-Demand for PVC (kT)
0%
10%
20%
30%
40%
50%
60%
0
500
1,000
1,500
2,000
2,500
3,000
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
PVC Production (kt) PVC Import (kT) Import as a % of consumption
Source: CPMA, Exim Data, Industry Research
Need for strengthening domestic PVC production
Looking at the imports statistics for the period April 2014 – September 2015, it is seen that the top five
countries that export to India, namely, Taiwan, Korea (South), China, Japan and Iran, account for 87% of
the total imports into India, with just Taiwan & Korea (South) alone contributing to over 50%.
Figure 14 : Annual growth rate of industry (%)
Figure 15 - Region wise break-up of PVC imports (April 2014- September 2015)
Taiwan 28%
Others 5%U S A 1%
Germany 1%
Vietnam 1%
Norway 2%
Thailand 3%
Iran 5%
Japan 8%
China 21%Korea 25%
Source: Exim Data
As mentioned earlier, demand growth is expected to increase at 13% in the coming years. With any grass
root plant taking almost 4-5 years to fructify and with no announcement as on date on creation of fresh
capacity in the country, domestic production capacity, and therefore production, is expected to increase
marginally or remain at around the same levels during this period. As a result, by 2020, India would need
approximately 3,700kt of imports i.e. an additional 2,300kt from the present level to meet its PVC
demand.
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
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-20%
20%
60%
100%
140%
180%
220%
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Production growth (%) Import growth (%) Demand growth (%)
Source: Industry Reports
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
1,000
2,000
3,000
4,000
5,000
6,000
2014-15 2015-16* 2016-17* 2017-18* 2018-19* 2019-20* 2020-21*
PVC Production (KT) PVC Import (KT) Import as a % of consumption
This level of imports will be highly unsustainable. For instance, the top 5 importing countries (excluding
India) & their quantum of imports expected in FY16, is given here:
Figure 16 - PVC import projection in India
Figure 17 : Top Five Importing Countries (kT)
Source: CPMA Industry research
Source: Exim reports
As can be seen, even today, no other country imports over a million metric tons per year. This is a clear
reflection of the difficulty level in trying to import 3-4 million tons per year. Such high levels of imports
will also have a deleterious effect and the resultant net outflow of foreign exchange could be of the order
of US $5 billion. Another factor that goes to show that this level of import is almost impossible is the
estimated global trade in PVC resin by the year 2020 which is at around 10 million tons. It will again be
not prudent for India to expect that almost 37% of this will be an inflow into the country.
If we look at countries with sizable consumption volumes, it can be seen that these are the ones with
adequate – in fact surplus – resin capacity, except for India. The following table will illustrate this fact.
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
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930
700500
450450 3030
Turkey China Russia Canada Brazil Total
Country Capacity (kt) Domestic Demand (kt) Surplus Capacity (kt)
Taiwan 1,930 700 1,230
Korea 1,470 700 770
Japan 2,090 1,450 640
China 24,300 14,800 9,500
Iran 730 350 380
USA 7,950 4,600 3,350
Source: Industry reports
Figure 18 - Countries with surplus capacity
A hypothetical analysis of the projected supply – demand balances in the top five exporting countries in
2020 would also show that, even if they were to stop exporting to all other countries and divert their
entire surplus to India, it still would not be adequate to meet our demand. The following assumptions are
taken into account.
I. Setting up petrochemical plants requires high lead times. Capacity expansion has stagnated in
both Taiwan and Korea. Taiwan is expected to gradually increase production by way of better
capacity utilization. Growth of Chinese capacity addition has decreased drastically and capacity
is expected to be at 25,200 kt in 2020. Production is expected to increase by way of capacity
utilization in China, Japan and Iran
II. Demand is assumed to be same in Taiwan, Korea, Japan & Iran while it is assumed to grow at a
CAGR of 4% in China.
Figure 19 – Exportable surplus from top five importing countries
Countries Taiwan Korea China Japan Iran Total
Capacity (kt) 1,930 1,470 25,200 2,090 730 31,420
Domestic Demand (kt) 700 700 18,000 1,450 350 21,200
Production (kt) 1,814 1,400 18,900 1,881 657 24,652
Exportable quantity (kt) 1,114 700 900 431 307 3,452
Likely exports to India in 2015-16 (kt) 470 390 220 250 110 1,440
Further quantity exportable from top 5 in 2020 (kt) 644 310 680 181 197 2,012
Source: Industry reports
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
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As seen in the above table, the further quantity that can be exported from the top five countries is 2
million tons. It would however be naïve to assume that these countries would export only to India and no
one else. There could also be growth in demand within these countries that can further depress
availability. The risk of Chinese capacity coming down is very real. The PVC manufacturing industry in
China is currently facing technological challenges. Currently, only 20% of its manufacturing process is
based on the ethylene route while the remaining 80% is based on the acetylene route, which is the coal
based calcium carbide process. This process has come under pressure on account of air pollution, mercury
pollution, international conventions on Mercury and depletion of Mercury resources in China. The
Minamata Convention on Mercury requires reduced usage of Mercury in VCM manufacturing, in terms of
per unit production by 50% by 2020 compared to levels in 2010. The Chinese Government has already
issued a directive asking manufacturers to switch to low mercury catalysts. This involves considerable
capital expenditure and considering that the Chinese manufacturing capacity is fragmented with many
players having capacities lower than 100kt, it remains to be seen how many can economically take on this
kind of a capital expense. This would bring into doubt not only the exportable surplus of PVC that would
be available in China but also the ability of the local manufacturers to meet domestic demand, thereby
providing manufacturers based in Taiwan and Korea a market closer than India to offload their surplus.
All these point to clear possibilities of international suppliers not being able to meet the demand in India
in the future, thereby making capacity addition in the domestic industry an absolute must.
Caustic soda finds applications in a wide variety of sectors including Textiles, Alumina, Pulp & Paper and
others. The application mix varies slightly when compared to global consumption patterns as the use of
Caustic soda in textiles is relatively more prevalent in India. With respect to chlorine, there is a marked
variation when compared to the global scenario. Globally, 40% of the chlorine produced is used by the
vinyl industry whereas only 7.8% of the chlorine produced in India is used. This is due to lack of
expansion in PVC production capacity in India. As a consequence, the chlor-alkali industry in India is a
caustic driven industry unlike the rest of the world, where it is a chlorine driven industry. The sectoral
consumption of Caustic Soda & Chlorine, both at the global and country level, is given below:
Caustic Soda domestic capacity additions being hindered by lack of PVC capacity growth
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
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Figure 20: Indian Caustic Soda Segment Breakup (%)
Source: AMAI
Vinyls 8%
Inorganics 12%
HCl 14%
Water Treatments 3%
Others 63%
Figure 21: Global Caustic Soda Segment Breakup (%)
Organics 17%
Alumina 17%Others 20%
Water Treatment 3%
Soaps & Detergents 7%
Textiles 10%
Inorganics 10%Pulp and Paper 16%
Source: AMAI
Figure 23: Global Chlorine Segment Breakup (%)
Vinyls 40%
Inorganics 22%
HCl 12%
Water Treatment 6%
Others 20%
The domestic demand for Caustic soda was at 3,231 kt in 2014-15. Total domestic production stood at
2,761kt while imports were at 508kt. Imports has been increasing over the past few years at a rate faster
than capacity addition (ref to figure 24).
Knowledge and Strategic PartnerWhite Paper on Enhancing Competitiveness ofIndian PVC & Caustic Soda Industries
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Alumina 13%
Organics 10%
Pulp and Paper 10%
Inorganics 7%
Textiles 21%
Soaps & Detergent 7%
Water Treatment 2%
Others 30%
Figure 22: Indian Chlorine Segment Breakup (%)
Source: AMAI
Indian caustic demand, in addition to its steady growth as a basic alkali that goes into very many sectors,
will also be greatly driven by the expanding alumina capacity along the East Coast. Several projects have
been announced and are at various stages of implementation. The impact of these on caustic soda
demand is tabulated below.
Figure 24 - Caustic Soda supply - demand
-10%
0%
10%
20%
30%
40%
50%
60%
70%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2010-11 2011-12 2012-13 2013-14 2014-15
Production (kt) Domestic demand (kt)
Capacity growth rate (%) Import growth rate (%)
Qua
nti
ty(k
t)
Source: AMAI
Current Proposed Total Current After
expansions
mtpa mtpa mtpa ktpa ktpa
Lanjigarh - Orisa 1.40 3.60 5.00 168 600 Damanjodi - Orisa 2.10 - 2.10 252 252
Belgaum - Karnataka 0.35 0.35 42 42
Muri - Jharkand 0.45 0.45 54 54
Renukut - UP 0.70 0.70 84 84
Utkal Alumina Project Rayagada - Orisa 1.50 - 1.50 135 135
Aditya Alumina & Aluminium Project
Kanariguda - Orisa 1.50
1.50
180
Anrak Aluminium Makavarapalem - AP 1.50 1.50 180
Jindal Aluminium Vizianagaram - AP 1.40
1.40
168 Total 6.50 8.00 14.50 735 1,695
Nalco
Hindalco
Refinery Capacity Refinery Lye Demand
Vedanta
Alumina Producers Location
Figure 25 : Alumina producer's overview in India (KTPA)
There is thus enormous scope for adding to the caustic soda capacity in the country, if only a fix can be
found for sinking the additional chlorine volume. And there is no better solution to this than expanding
the vinyls capacity.
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What ails PVC and Caustic capacity addition? 04
From the foregoing, it is very evident that there is enormous gap between supply and demand in both PVC
and caustic industry, which would only increase at a rapid pace as we go forward. This then begs the
question – why capacity creation is not taking place, even to the extent of part of the demand growth?
Caustic soda imports have increased over the last five years at a CAGR of 22% while demand has grown at
a CAGR of 4.6%. Capacity and production have grown only at 0.8% and 2.4% CAGR respectively. The
increased arrival of imports has resulted in lower average capacity utilization of 80% in the domestic
caustic soda industry (ref to figure 26).
Imports (kt) Import growth rate (%)
Source: AMAI, EXIM
0%
10%
20%
30%
40%
50%
60%
70%
0
100
200
300
400
500
600
700
2010-11 2011-12 2012-13 2013-14 2014-15
Qua
nti
ty (
kt)
Impo
rt g
row
th (
%)
Figure 26 - Imports of Caustic Soda (2010-2015)
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Caustic soda capacity growth has also been stunted due to the lack of addition of vinyl capacity as well as
derivatives industry for off- take of chlorine. Chlor-alkali industry is a power and water intensive
industry. Huge imports are arriving into India from countries in the Middle East where power is cheap.
Inadequate trade control measures are resulting in unregulated imports leading to low capacity
utilizations in the domestic vinyl industry. Also, capacity addition has stagnated and has not kept up
with demand. This can be attributed to the lack of availability of merchant ethylene and higher input
costs due to non-availability of adequate feedstock (EDC & VCM) in India (except for chlorine from the
caustic soda industry). The delay in PCPIR – Petroleum, Chemicals & Petrochemical Investment Regions
has resulted in non availability of merchant ethylene for stand alone downstream use. The low duty on
PVC and low duty differential is leading to inadequate margins in the end market.
Lack of institutional support in growth segments like crop protection chemicals, water treatment, etc.
are stymieing growth in chlorine consumption while growth in alumina capacity triggers growth in
caustic soda capacity. For caustic capacity to grow, the chlorine that is generated would need to be
consumed and for this vinyl capacity addition is a must
When we look at PVC, it is apparent that India has been attractive to capacities worldwide. For instance,
import data over the last six months shows that India has imported material from over 24 countries,
which include Korea, Taiwan, Japan, China, and EU countries along with U.S.A, U.K. as well as Brazil and
Colombia. Due to the low import duty for PVC in India and the availability of a fast growing market,
international suppliers are able to offload their surplus material easily in India. The import duty is lower
than most developed and developing countries (ref to figure 27).
7.50%10%
14% 15%
20%
India Indonesia Brazil Philippines Malaysia
Figure 27: Import duty in other countries
Source: CPMA
Moreover the lower duty differential between PVC and imported feedstock compared to that in other
countries that similarly depend on imported feedstock further discourages local capacity creation (ref to
figure 28).
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Figure 28 - Duty Differential comparison
Product Countries dependent on imported feedstock
EDC 2 0 3
VCM 2 0 0
PVC 7.5 20 15
Duty Differential
PVC - EDC 5.5 20 12
PVC - VCM 5.5 20 15
India Malaysia Philippines
In fact, MNCs are not interested in creating capacities in India, despite this sector being open to FDIs
from 90s onwards, but do so outside India, which is also borne out by the proportion of exports in 2014
by Korea & Taiwan (the top two exporting countries to India) to India in relation to their total exports.
575
500
600
700
800
400
300
200
100
0
52%
751
43%
Korea Taiwan
Total exports Exports to India
Figure 29 – PVC – Importance of Indian market for Korea & Taiwan (kT)
Thus, while their supply levels easily support an establishment of a global scale plant in India, they do
not find it attractive to invest.
The Government has imposed ADD on imports from certain countries. However, ADD is not enough to curb
imports as this only addresses part of the gap between fair price and unfair price at which dumping takes
place, and, imports still arrive into the country using tariff concessions available through FTA, including
misuse of anomalies in the tariff classification, as well as from countries where ADD is not applicable.
Moreover, the relatively high interest rate environment and the poor development of infrastructure in the
country increase transaction costs for businesses which further serves as an impediment to growth in the
vinyls industry.
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Free Trade Agreements - Relevance
Over the last few years, India has entered into a number of Trade Agreements (TAs) including free trade
agreements, preferential trade agreements, comprehensive economic cooperation agreements and
comprehensive economic partnership agreements in order to increase its foreign trade, particularly
exports. Some of the agreements signed by India are Comprehensive Economic Cooperation Agreement
(Singapore), Comprehensive Economic Partnership Agreement (South Korea & Japan), India – Malaysia
Free Trade Agreement, India – ASEAN Free Trade Agreement, etc.
India has committed to reducing import duties on imports of PVC, EDC or VCM in almost all the TAs, but
timing and extent of reduction varies. There is a risk of inversion of import duties across the PVC value
chain as a result of the trade patterns between India and the TA as well as non-TA countries. Today, the
PVC industry imports most of its feedstock from countries with which India does not have TA. As a result
of the TAs, India will have lower or no import duty for some TA countries on PVC but will continue to have
to import EDC and VCM from non-TA countries at the current import duty of 2%. This would further narrow
the duty differential, if not turning them in to negative, which has already impacted capacity addition in
the industry. As an illustration, in the case of Japan, duty on PVC will be reduced to zero by the end of
2019. This has helped imports of PVC from Japan jump from an average of 3kt per month in FY15 to an
average of 18kt per month in FY16. This number is expected to further increase. Granted, by 2019, duty
on imports of EDC and VCM from ASEAN member countries, South Korea and Japan will also be removed.
However, India imports only a minor share of its requirements of these products from this set of
countries, and as such, this is not likely to benefit local PVC industry in any great way. Indonesia is the
only TA country that supplies EDC and Japan is the only significant supplier of VCM, with which India has
a TA. India actually imports most of its EDC & VCM from Arab countries, the USA & Europe with which it
does not have any TAs. It is also thus critical that India does not agree for any duty concession on any PVC
product in its negotiations on RCEP and keeps all three HS codes – 390410, 390421 & 390422 – under
“exempt” category.
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Recommendations for augmenting PVC & Caustic Soda Capacities
05
Given below are some suggested measures, both fiscal and policy, that can go a long way in enthusing investments in capacity augmentation, both by Indian companies as well as MNCs.
• Increase import duty of PVC & caustic soda from 7.5% to 10%. This will help revive the investment sentiment for the PVC industry in India. It will lead to increase in domestic PVC manufacturing in India and reduce imports thereby saving foreign exchange. Another impact would be local value addition and increase in jobs locally. Moreover, there would be minimal impact on prices i.e. downstream industry would be unaffected
• Reduce tariff on intermediates (EDC & VCM) to zero. As there is no local manufacture of EDC or VCM for merchant sale, any duty reduction will not adversely affect any domestic company. Facilities that are used to manufacture these intermediates are usually set up only for captive use. This proposal will therefore also not impact setting up of such facilities
• Revisit tariff concessions extended to countries with which India has signed Trade Agreements, especially the ones that export into India
• Give thrust to the PCPIR policy, ensuring availability of ethylene for downstream units. Developed petrochemical infrastructure can greatly reduce logistics cost. E.g., in countries with developed petrochemical infrastructure, intermediary feedstock is sourced off a pipeline. In India, these products are shipped across long distances involving huge logistics cost which makes domestic manufacturers uncompetitive compared to international counterparts
All these measures can result in a potential investment of over Rs. 20,000 crores over the next 5-7 years, in addition to possible investments in the upstream and downstream sectors.
6. ConclusionsBoth the PVC and the caustic soda industries are essential to the growth of the Indian economy with both
products finding applications in a variety of sectors as well as being a source of employment. Today,
close to 50% of the demand for PVC in the country is met by imports. Though the level of imports have
been increasing over the years and thereby meeting the supply-demand deficit for PVC in the country, it
remains to be seen whether this can be sustained over the medium to long term when domestic demand
grows. Very little capacity expansion is seen in the countries which are currently exporting to India,
meaning that there is an upper threshold beyond which these countries cannot supply. There could be a
case in the future where Indian demand for PVC could possibly outstrip supply. This would lead to
processed PVC products not being available for use as well as a lot of downstream processing facilities
having poor capacity utilization levels. The immediate effect would be loss of employment. Considering
that tens of thousands of people are employed by the PVC downstream industry, the effects would be
detrimental. It would also have a deleterious impact on the foreign exchange outflow and the trade
deficit. Increase in domestic production capacity of PVC would give processors a secure and stable source
of supply whereby plant capacity utilizations levels can be high leading to wealth creation in the
economy.
Increase in PVC production capacity will also facilitate increase in chlorine utilization leading to better
ECU economics and enhancement in caustic soda capacity. Caustic soda production capacity
enhancement is also reducing due to the influx of cheaper imports from the Middle East, where power
costs are lower. When the country's goal today is to 'Make in India', increased imports and lower
manufacturing levels contribute to loss of potential employment and widening the current account
deficit
As such, unless certain corrective fiscal measures are taken, India runs the risk of missing out on the
growth opportunities in both these sectors.
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7. AbbreviationsADD – Anti Dumping Duty
AMAI – Alkali Manufacturer's Association of India
ASEAN – Association of South East Asian Nations
BRICS – Brazil, Russia, India, China and South Africa
CAGR – Cumulative Average Growth Rate
CPMA – Chemicals and Petrochemicals Manufacturer's Association
EDC – Ethylene Dichloride
FICCI – Federation of Indian Chambers of Commerce and Industry
FMCG – Fast Moving Consumer Goods
FTA – Free Trade Agreement
GDP – Gross Domestic Product
MNC – Multi National Company
PVC – Poly Vinyl Chloride
PCPIR – Petroleum, Chemicals and Petrochemicals Investment Region
RCEP - Regional Comprehensive Economic Partnership
TSMG - TATA Strategic Management Group
VCM – Vinyl Chloride Monomer
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Founded in 1991 as a division of Tata Industries Ltd,
Tata Strategic Management Group is the largest
Indian own management consulting firm. It has a 50
member strong consulting team supported by a
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Tata Strategic offers a comprehensive range of
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Manish PanchalPractice Head – Chemicals, Energy & Logistics
E-mail: [email protected]
Phone: +91 22 6637 6713
9. Tata Strategic Contacts
Karthikeyan.K.S
Principal – Chemicals
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Phone: +91 22 6637 6756
Report co-authored by Manish Ratna, Business Analyst ([email protected]), TSMG.
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Established in 1927, FICCI is the largest and oldest apex business organisation in India. Its history
is closely interwoven with India's struggle for independence, its industrialization, and its
emergence as one of the most rapidly growing global economies.
A non-government, not-for-profit organisation, FICCI is the voice of India's business and industry.
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ABOUT FICCI
Industry’s Voice for Policy Change
Mr. P. S. SinghHead-Chemicals &
Petrochemicals DivisionFICCI
Federation House, 1 Tansen MargNew Delhi-110001
Tel: +91-11-23316540 (Dir)Email: [email protected]
Ms. Rinky SharmaResearch Associate
Chemicals & PetrochemicalsFICCI
Federation House, 1 Tansen MargNew Delhi -110001
T: 011-23487473 (Ext: 473)Email:[email protected]
FICCI Contacts